Monetised Risk and Risk Trading Methodology
National Grid Gas Transmission (NGGT) manages the National Transmission System (NTS), which is a series of high-pressure transmission pipelines transporting gas from import terminals, and onshore fields, to the smaller distribution networks that supply businesses and households, as well as large users such as power stations. They are responsible for the physical transportation of gas across the UK, performing a similar function to the motorways on Britain’s road network. The NTS is essential in ensuring gas is safely and reliably supplied to over 23 million end consumers connected to the gas networks today. The NTS is the most flexible part of the UK’s wider energy system in terms of energy stored. In 2015 the gas network provided a peak day energy demand of 4000GWh; by comparison, electricity provided a peak day demand of around 1000GWh.
Asset Investment Manager (AIM) was used to develop and embed a monetised risk trading methodology within NGGT across the entire asset base, consisting of: 7600km Pipeline, 620 Sites, 9 Terminals, 25 Compressor Stations, 60 Large Industrial Offtakes, and 130 Distribution Network Offtakes to 8 Regions.
A multi-disciplined team set out a plan to the Executive to review external utility methodologies, undertake a feasibility study and recommend, design and implement a new methodology to meet regulatory and business requirements. The project started in May 2016 with a requirement to submit a methodology to the regulator on 31 March 2017.
There were a number of key challenges in developing a methodology to fit across the entire asset base:
- the availability of information about the assets
- how asset risks are identified and managed
- the performance expected from the assets
- the value of that performance to all stakeholders
A methodology was developed utilizing a combination of FMECA and Event Tree Analysis, which facilitated the analysis and representation of possible events and consequences following an asset related issue, such as an asset failure.
In consultation with stakeholders across the business, a comprehensive set of measures were developed that valued each of the failures covering safety, environmental, availability and reliability, financial and societal and company impacts in financial terms. These measures would assist in articulating whole life cycle costs and justifying our investment plans.
Following the feasibility phase, the team designed the full programme of works to develop and validate the solution. This allowed the team to submit a method to the regulator with confidence that it would deliver the ability for the Company to manage asset risk and enable the justification for investment and maintenance activities to external stakeholders.
During the full programme, time was spent to validate the methodology and both internal and external UK and European information was used to assess if the modelled methodology reflected reality.
External industry experts were also used to fully validate all the underlying models.
The methodology developed has been recognized by the NGGT Executive team as one of the key components drive business and wider stakeholder benefits.
- Meets regulatory requirements to have a defined methodology with feedback from Ofgem positive
- Assisted in defining asset data requirements and data improvement requirements to address gaps
- Helps articulate the risks being managed and benefits being delivered to our external stakeholders across safety, reliability, and environmental performance measures.
- Will be utilised to develop asset investment plans as part of regulatory settlement and justify investments of between £650m to £800m over the regulatory period
- Will be utilised to identify areas of risk and criticality where additional monitoring could drive additional value for stakeholders.
Asset Investment Manager (AIM) is a fast, flexible and intuitive risk-based decision support platform that optimizes asset investment under multiple performances, risk, and budgetary constraints.